Add-on interest

Add-on interest is a form of pre-computed interest. The lender starts with a so-called annual rate and divides this by 12 to get a monthly rate. This rate is applied to the original amount advanced for each month in the term of the loan without any reduction for monthly payments. For example, if $1,000 is advanced for 36 months at an add-on rate of 12 percent, the total interest charge is $1,000 x .01 x 36 = $360. This works out to a Nominal Annual Rate under the actuarial method of 21.2 percent. The 21.2 percent rate is the rate that would be disclosed under federal truth-in-lending rules. TValue does not calculate add-on interest.